In recent years, crypto has become somewhat of a buzzword when it comes to the financial world. Thanks to emerging technologies like blockchain and payment trends in Southeast Asia, there has been widespread adoption of cryptocurrency payments and investments in the region. Within Southeast Asia and Central Asia, there was a 706% increase in the market’s raw value this year, bringing Central and Southern Asia and Oceania to the fourth largest crypto market in the world.
Adoption of cryptocurrency in Southeast Asia
According to a report by global blockchain firm Chainalysis, cryptocurrency is especially popular in countries like Vietnam, Pakistan and India. One of the reasons could be attributed to payment trends in Southeast Asia. Here, about 438 million people remain unbanked, and cryptocurrency is often used as another mode of payment for this demographic. Another primary driver is the rise of stablecoins, where the price of the cryptocurrency is pegged to the currency of a particular country or a commodity such as gold. For emerging economies, this presents a more stable option compared to their native currency, as many of them face fluctuating and unpredictable exchange rates due to a lack of bureaucracy from the government and financial institutions and expensive banking systems. As a result, we see more people from these nations turning to decentralised crypto services as an alternative.
The adoption of cryptocurrency isn’t only observed in developing Asia alone. Singapore has expressed its ambition to become a leading global crypto player in the next few years. To do this, they have to be open to new opportunities in the crypto sphere, while still placing guidelines in order to protect its risk-averse investors. Given its volatility and relatively new status as a viable alternative asset, the future of cryptocurrencies remains uncertain.
China’s ban on cryptocurrency and its implications
Given the success of Bitcoin, Shiba Inu, Tether, and more, crypto coins underwent unprecedented growth around the world. However, China’s recent ban on cryptocurrency put a spanner in the works. The People’s Bank of China recently declared all virtual currency-related transactions to be illegal, citing its endangerment of assets. As one of the global powerhouses and largest economies in the world, this obviously posed a threat to the crypto economy – Bitcoin saw an immediate $2000 drop after this announcement. On a larger scale, China’s crackdown led to the closure of 26 mines in the Sichuan Province, and payment providers and banks were not allowed to accept cryptocurrency payments. This was a huge blow to the market as China accounted for 65% of the total Bitcoin produced in the entire world.
While this put a stop to one of the largest crypto economies in the world, it didn’t stop cryptocurrencies from reaching widespread adoption in Southeast Asia. Initially, the price of many popular coins fell. However, the market soon began to pick up. With its decentralised nature, miners will just go elsewhere to mine cryptocurrencies, presenting more opportunities for other nations. Furthermore, in November this year, Mastercard partnered with three digital asset platforms in Asia, namely Amber Group from Hong Kong, Bitkub from Thailand and Coinjar from Australia. The partnerships aimed to allow the conversion of digital money into fiat currencies, which can then be spent with Mastercard merchants.
Other challenges
Nevertheless, there are other challenges.
One reason that could be attributed to China’s crypto crackdown is its high energy consumption, which has been associated with the industry. The high energy cost right now has made mining BTC not economically profitable, constraining BTC’s supply in the market. The introduction of ETH 2.0 in 2022 is going to shift ETH from a proof-of-work system to a proof-of-stake, reducing energy consumption by 99%. Moving forward, the crypto ecosystem as a whole is stepping into a normalized state, with a reasonable energy footprint.
The anonymity of cryptocurrency due to its decentralised state also makes it a potential vehicle to carry out illegal activities. However, most of the crypto players today have very stringent AML/KYC policies modelled after the banks or licensed financial institutions.
So, what’s next?
When people think of cryptocurrency, popular coins like Bitcoin and Dogecoin come to mind.
The reason behind Bitcoin and Doge’s traction could be the proliferation of retail investors frequenting internet forums and its almost cult-like following of well-known investors such as every tweet made by Elon Musk. Tesla CEO has been known to cause wild swings in the crypto environment just by making a single tweet. However, such trends go against the effort to demystify cryptocurrency exchange. Rather, it adds to the narrative of a “high-risk” investment option, which could deter new and amateur investors.
In reality, the cryptocurrency exchange is moving to become a very normalised and viable option, and soon you’ll see trading activity here that you usually see in the stock or foreign exchange markets. Especially with the emergence of exchange-traded funds, or ETFs, crypto enthusiasts are now able to lower costs, diversify and rely on outsourced knowledge. Perhaps one of the biggest misconceptions or barriers to entry in this area is that because the market is relatively new, as well as the presence of memecoins (i.e. Dogecoin), investors still see it as a speculative instrument. In a volatile market, direct purchasing of coins is almost as risky as staking a lousy coin. Activities like these are deemed to be reserved for investors with the largest risk appetites. For the average investor, it can often lead to devastating results. Alternative assets like ETFs act similarly to common stocks, as they are traded daily and usually carry a lower risk, presenting a viable option for amateur investors.
Platforms like OMO Finance are working to provide sophisticated investment products that provide much better risk for high-net-worth and institutional investors and to decrypt this process for retail investors. By utilizing crypto derivatives and applying the traditional hedging strategies on crypto, OMO Finance helps clients to hedge price risks and take advantage of volatility. In OMO Finance, we see tokens with limited supply (e.g. BTC) or diminishing supply (e.g. ETH) as digital assets with an intrinsic function to retain value. This is why we are bullish about BTC and ETH in the long run, but capitalise on the short-term market volatility to earn above-market profits.
For 2022, we foresee that new regulations, federal reserve actions, and traditional financial market performance will continue to bring short-term volatility to the crypto market. What providers can do is offer curated DeFi & CeFi products to give retail customers a wide range of crypto investment options that are suited for their individual risk profiles.
This article was contributed by Evie Zhang, Founder and CEO of OMO
About the author
Evie represents a classic example of mainstream to crypto conversion. She was educated in Singapore under a local scholarship before moving on to pursue an engineering degree at the University of Oxford with a full scholarship from Temasek Holdings.
In her early career, she served under large conglomerates like P&G, Singapore Telecommunications, DBS, etc. She first entered the venture capital world as an Investment Director for Vertex Venture, a fully owned VC fund of Temasek Holdings. There, she led investments in the new batch of unicorns in Southeast Asia, like Grab, Patsnap, Paktor (now 17Live). She then pursued a career in film as the first employee of Flagship Entertainment, a joint-venture between Warner Brothers and a Chinese media fund CMC Capital. She moved back to the venture capital world for three years after, as partner to a hard-tech RMB investment fund, Lantern Venture, investing in technology driven companies like Landscape (Chinese SpaceX), United Health (Chinese manufacturer of MRI & Pet-CT Scanning machines), etc.
Evie serves as OMO’s Co-Founder and Chief Executive Officer, bringing her knowledge in real industries, large corporations and classic venture capital to work, helping to lay a stable, diligent and trustworthy foundation for the OMO community.